# Question

a. Assume an investor purchases a 10-year, $1,000 bond with a coupon rate of 12 percent. The market rate almost immediately falls to 9 percent. What would be the percentage return on the investment if the buyer borrowed part of the funds with a 25 percent margin requirement? Assume the interest payments on the bond cover the interest expense on the borrowed funds. (You can use Table 12–3 in this problem to determine the new value of the bond.)

b. Assume the same bond in part a is purchased with 25 percent margin, but market rates go up to 14 percent from 12 percent instead of going down to 9 percent. You can once again use Table 12–3 on page 317 to determine the price of the bond. What is the percentage loss on the cash investment?

b. Assume the same bond in part a is purchased with 25 percent margin, but market rates go up to 14 percent from 12 percent instead of going down to 9 percent. You can once again use Table 12–3 on page 317 to determine the price of the bond. What is the percentage loss on the cash investment?

## Answer to relevant Questions

Assume an investor is trying to choose between purchasing a deep discount bond or a par value bond. The deep discount bond pays 6 percent interest, has 20 years to maturity, and is currently trading at $656.80 with a 10 ...What is the yield to maturity for the data in problem 6? Assume there are 10 years left to maturity. It is a $1,000 par value bond. Use the trial-and-error approach with annual analysis. What are the disadvantages of investing in convertible securities? Lowrey Metals Company has a $1,000 convertible bond outstanding that has a market value of $1,100. It has a coupon rate of 7 percent and matures in 10 years. The conversion price is $40. The common stock currently is selling ...What is meant by the exercise or strike price on an option?Post your question

0